US Outlook Report: Consumers Still Holding Back in April
We can’t blame bad weather for another month of disappointing retail sales. The April retail sales numbers suggest weaker real consumer spending growth in Q2 than previously expected. A stronger consumer is needed to offset weak business investment and declining exports. At least through April it appears the rebound from Q1’s dismal real GDP growth rate will remain anemic. We currently forecast real GDP growth in the second quarter somewhere around 2.3%. This is bad news since recent data releases imply real GDP for the first quarter will be revised to a negative 0.6%. In fact, the first half real GDP growth rate has been so bad that even if growth rebounds toward 3.0% in the second half of the year, the full-year growth rate will be only 2.2% in 2015, roughly same as the average annual growth rate seen over the last five years, and lower than last year’s 2.4% performance.
This new-found weakness in retail sales makes the timing of the first U.S. interest rate hike more uncertain. The FOMC, now in data-dependence mode, probably won’t chance a rate hike in this anemic economic environment without more concrete signs of acceleration. If the second-half recovery materializes, the FOMC could still move in September, but now there is a rising probability rate hikes could be delayed until the end of the year.
So are we headed for recession? I don’t think so. To understand why, check out this week’s US Outlook Report.
Tags: economy